I just got back from New Orleans, the Crescent City, where the American Academy of Estate Planning Attorneys held its Spring Summit conference. Everyone had a wonderful time, though the 8am sessions came a little early for those who had been out on Bourbon Street the night before!
I gave several presentations, including one on estate planning under the new, temporary TRA 2010. In this blog, I’ll give a brief overview of what TRA 2010 does and then look at the fact pattern we examined. In the next two blogs I’ll go over some of the strategies that might work in this case.
2011 and 2012
In 2011 and 2012 the system for gift and estate taxes is (mostly) unified.
Gift Tax
For gift tax purposes, the “basic” exclusion stands at an unprecedented $5 million. In addition, the surviving spouse can use the predeceasing spouse’s “Deceased Spousal Unused Exclusion Amount” or “DSUEA.” In order for the surviving spouse to be able to use the DSUEA, an estate tax return must have been timely-filed for the pre-deceasing spouse.
Estate Tax
For estate tax purposes, the “basic” exclusion is also $5 million. The DSUEA is also available, but only for the last deceased spouse. There is a step-up in basis.
Generation Skipping Tax
For generation skipping tax (GST) purposes there is also $5 million exemption available to shield generation-skipping transfers. Note that, unlike the gift and estate tax, there is no portability of the deceased spouse’s unused GST exemption.
For gift tax, estate tax, and GST purposes, the rate for transfers in excess of the exclusions / exemptions is 35%.
2013 and beyond:
In 2013, TRA 2010 sunsets (with EGTRRA) and we revert to pre-2001 law. This means that the applicable exclusion reverts to $1 million. It may be used in life or at death. For GST purposes, there is a $1 million exemption, inflation-adjusted from the base year. For practical purposes, this means that the 2013 GST exemption is likely to be about $1.4 million.
Case Study:
It’s a beautiful spring morning, and new clients have just walked into your office. James and Susan are a married couple who met in college and spent the early years of their marriage growing a business alongside their family. Now in their late 50’s, their business is thriving, and James and Susan have a combined net worth of just under $20 million.
The timing couldn’t be better for James and Susan to do some serious estate planning, because of the new law. This may very well turn out to be a unique window of opportunity for high net worth clients, like them. In my next blog posts we’ll look at their assets in greater depth and look at some strategies that might work well for them to take advantage of this unique window of opportunity.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
6050 Santo Rd Ste 240
San Diego, CA 92124
858-453-2123
www.aaepa.com
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022
